In discussing the troubled satellite radio business, we noted that two of the major difficulties faced by the industry were the huge capital costs required to build and maintain the business, combined with the rise of (somewhat unexpected) competition in the form of internet radio and internet downloads combined with portable MP3 players like the iPod. Over at Slate, Farhad Manjoo has a suggestion that would solve both of those issues: Sirius XM should ditch the satellites and become a web only broadcaster. It's an interesting idea, but it seems unlikely (even though they offer online streams currently). Sirius XM still remains so car focused, it still thinks that being in automobiles is a competitive advantage. However, as Manjoo points out, it's actually damaging the company, because it's had to pay large sums to automakers to get the devices installed in cars. Instead, if it went to an internet-only solution, and cut the subscription prices, it could reach a much larger audience, much more easily and cheaply. Build mobile apps, and people can use their phones to listen to content. Add downloadable podcasts of popular shows, and anyone with a portable device can time shift. It's so reasonable that it'll never happen.

Back in 1999, when plans for satellite radio were first talked about, I thought it was destined to fail. I had two reasons for why: I didn't think there really was that much demand and having just closely watched the disaster known as Iridium, I was intimately familiar with the massive and business-strangling capital costs associated with running a satellite-based business. It just seemed so capital intensive that any underestimate in terms of demand would kill you. And, in fact, Sirius has a pretty long history of being on the verge of failure.

With the news of Sirius XM preparing for bankruptcy, it's worth revisiting those original thoughts. While I'd love to claim credit for calling this a decade ago -- I think my reasoning turned out to be wrong. I vastly underestimated the number of folks willing to sign up for satellite radio (though, I think I was correct in recognizing that the number of subscribers would need to be massive and that would be difficult to achieve). And, while the capital expenditure costs were large, it seems like they, by themselves, may have been imaginable. What I hadn't fully expected, was the massive expenses the companies (now company) would ring up trying to lock up "talent" to drive subscriber numbers up. Also, I didn't expect ridiculous regulatory restrictions. The 18 months it took federal regulators to approve the merger between XM and Sirius, combined with the ridiculous restrictions that were put on the combined company significantly contributed to satellite radio's troubles. And, finally, additional competition in the form of internet radio and podcasts/portable media really have put pressure on satellite radio -- none of which I foresaw at the time.

While the company is clearly looking to restructure and keep going, you have to wonder if it even makes sense at this point. With those alternatives increasingly becoming popular in the market, it's difficult to see how satellite radio can possibly provide enough excess value to pay for the increased capital costs compared to the competition. Even if the company restructures and comes out of bankruptcy, who's willing to bet it will have to through this whole process again in a few years?

We've talked for years about the danger any media makes in focusing on setting up a paywall. In an age where openness and the ability to get others to spread and promote the content for you is often a key barometer of success, locking yourself up behind a paywall takes you out of the wider conversation, and by its very nature, decreases your overall ability to influence. The LA Times has an article noticing that this seems to be exactly what's happened with Howard Stern, who famously made the jump from terrestrial radio to satellite radio -- and in doing so, appears to have lost a large percentage of his audience, and with it much of his influence. Of course, he was paid handsomely for doing so, but Sirius almost certainly expected Stern to bring a larger percentage of his audience with him. Yet, as the article notes, Stern's waning influence due to the switch means that even he's having trouble getting the level of celebrity that he used to command to even bother coming on his show. Amusingly, the article also notes that the very reason why Stern claimed he was moving to satellite -- his troubles with the FCC -- may be contributing to his lack of influence with the new show. In the past, every time Stern got in trouble with the FCC, it boosted ratings, giving him plenty of free publicity. Without that foil, he loses much of the free publicity. Such is life behind the paywall, apparently.

Well, the terrestrial radio companies failed to stop the XM-Sirius merger from a happening with a rather ridiculous campaign against the merger, but that doesn't mean they can't continue to try to cause problems. The latest is that they've convinced Representative Ed Markey to introduce legislation requiring all satellite radio devices to include the ability to play HD Radio (terrestrial radio's attempt to provide a better quality product to compete with satellite). The FCC had just begun investigating whether or not such an HD Radio mandate made sense, but apparently Markey can't wait and is pushing to have the mandate pushed through as law before the FCC can study the issue. Is it worth mentioning that the NAB, the lobbying arm of the terrestrial radio stations (and the group that resorted to all sorts of questionable actions in trying to prevent the Sirius-XM merger), is one of Markey's biggest campaign contributors? Oh, and that XM CEO Mel Karmazin contributed to Markey's campaign back in 2001 (when Karmazin worked for Viacom), but apparently hasn't contributed more recently? Feel free to express your thoughts on the bill with this voting widget (if you're reading in RSS, click through to see it):

The 18-month saga of XM and Sirius trying to merger just keeps getting more and more ridiculous. Yesterday, we pointed to all of the silly hoops the FCC was trying to make the companies go through, that often had absolutely nothing to do with antitrust issues, and today comes the news that the FCC has fined the companies nearly $20 million for technical violations as some sort of precursor to merger approval. What do these technical violations have to do with the antitrust questions the FCC is supposed to be deciding? Absolutely nothing. Instead, it appears that the FCC is simply using its position as the decider over whether or not the merger goes through to get whatever licks in that it can against the two satellite radio companies, knowing that they'll have to obey quietly. Its like hazing. Because XM and Sirius need the approval of the FCC, it can just do anything it wants to them, such as adding bizarre requirements or even asking them to hand over $20 million.

It's not clear exactly what Kevin Marin and the FCC have been doing over the last year and a half since XM and Sirius announced plans to merge. The Justice Department gave its approval of the deal back in March. That had already taken over a year, and then everyone turned to the FCC to get its approval. From the length of time it took, perhaps the FCC had just figured that the DoJ wasn't going to approve the merger, and had to scramble to figure out the details before granting (or not) its own approval. FCC boss Kevin Martin has now sent around to the other commissioners his recommended concessions to approve the merger, and it includes things like a temporary ban on raising prices (for a few years) as well as requirements for some channels to be turned over to noncommercial and minority programming. While XM and Sirius eagerly agreed to these concessions (after all this time, they just want the damn thing to be over), other commissioners may try to impose additional requirements as well -- so this might not be over just yet.

In a rather disappointing move, satellite radio company XM has now settled with EMI concerning a lawsuit over its Inno device, that allowed users to record XM streams. This follows XM's similar settlements with the other major record labels last year. No terms are being announced, which is problematic. The whole problem with this lawsuit was the fact that the record labels seemed to believe that XM was unable to innovate without getting their permission and paying them. The Inno device was simply a device to record satellite radio streams -- which is perfectly legal. Time shifting and recording radio is well-established as being legal. But the recording industry used the case to try to squeeze extra royalty payments out of XM.

This is exactly the sort of "chilling effect" that people keep pointing out when it comes to copyright laws. These laws put the entertainment companies in a position where they get to dictate what kind of devices are legal and which are not. Increasing the uncertainty over whether or not a simple device like the Inno is legal, and forcing a two year legal battle to take place is no way to promote progress and innovation. It just makes many companies unwilling to go through that process just to offer the type of device that makes perfect sense and which customers want. It's doubly troublesome in that the RIAA specifically said that it would not step in to prevent these types of devices. Except that it did.

With that said, I was hoping that XM would stand up to the lawsuits and set a precedent, making it clear that the record labels cannot sue to block new technologies. However, with all of these settlements, that's not the case -- so the uncertainty and the chilling effects remain for all others. No settlement terms have been released, so it may even be that XM agreed to pay off the record labels to get them to settle, which would be even worse. It would just give the labels that much more incentive to keep suing every innovative new product that hits the market. This is extortion that slows down innovation and progress -- which is what we thought copyright was supposed to be promoting.

It only took over a year of ridiculous protests from traditional radio stations, but the Justice Department has finally decided that XM and Sirius can merge without creating a monopoly. It will be interesting to see if the NAB's own lobbying efforts helped disprove its point. The NAB, representing terrestrial radio stations argued vehemently that if XM and Sirius merged, it would create a "monopoly." The only problem with that statement is that if that were the case, it would mean that terrestrial radio wasn't competing in the same market. And, if that were true, why would the NAB care? So, by arguing so vehemently against the merger, it effectively showed what we all knew: terrestrial radio and satellite radio compete in the same market. Of course, the merger isn't a done deal yet, as the FCC still needs to weigh in. But given the amount of time it has already taken for the DoJ to make its decision, you would hope that the FCC was at least close to being done with its review as well. Update: No surprise here, the NAB is "astonished" by the decision.

The Justice Department and the FCC sure are taking their sweet time on approving (or denying) the XM/Sirius merger. The two companies' merger agreement was about to run out, so they've now had to extend it a few more months as they wait patiently for the government agencies to figure out whether or not satellite radio is a unique market or if it actually competes against other forms of audio entertainment. It's hard to justify what could possibly be taking this long. Terrestrial radio stations, as represented by the National Association of Broadcasters, have been the most vocal against the merger, claiming that to allow the merger would create a monopoly in satellite radio. However, the very activity of protesting the merger suggests that they know that satellite radio isn't an independent market and actually does compete with terrestrial radio. Still, the NAB must be thrilled it's been able to hold off the merger approval for this long, even if it eventually does get approved. The real question, though, is whether they've done anything else to try to compete with satellite radio, or if they're just hoping that the miracle of a blocked merger will simply force the satellite competition into bankruptcy.